Ryo Ishiyama, a former Deutsche Securities Inc. banker, plans to start a hedge fund investing in global commodities futures as early as July using a strategy he employed on his own personal investments.
The hedge fund will employ a so-called CTA strategy that uses computer systems to invest in exchange-traded futures around the world, said Ishiyama, 32, who set up Tokyo-based Steinberg Capital Co. in October 2011. The fund will have 300 million yen ($3.8 million) initially, 200 million yen of which is Ishiyama’s own money. He plans to raise the fund’s maximum capacity of 1 billion yen in about a year, he said.
Ishiyama joins a breed of new hedge funds seeking to provide alternative investments for Japanese clients following AIJ Investment Advisors Co.’s suspension by regulators for allegedly losing more than $1 billion with hedge-fund strategies. Ishiyama said he began investing 10 million yen of his own money in 2006 and that grew to 200 million yen by using a systematic trading strategy.
“What I want to offer isn’t investments that cater to investors’ requests, but rather want to attract investors who understands my strategy and are willing to put in money because of my strategy,” Ishiyama said in an interview in Tokyo yesterday. “As we’ve seen in AIJ’s case, you don’t run a fund for the sake of raising more money -- you run a fund to make returns.”
Ishiyama’s fund will target annual returns of about 20 percent and will have a Sharpe ratio of 2.3, he said. Sharpe ratio is a formula which analyzes whether investments offer enough returns to offset their risks. The greater a fund’s Sharpe ratio the better its risk-adjusted performance. Funds employing equity strategies would typically have a Sharpe ratio of about 1, he said.
The new fund will invest in global commodities markets including the New York Mercantile Exchange, the world’s largest energy exchange, and the Tokyo Commodity Exchange, Ishiyama said.
Most Japanese institutional investors are buying passive funds that track indexes to tap the commodities markets, leading to mispricings that create opportunities, Ishiyama said.
Traditional CTAs, which rely on developing computer models that fit historical price curves, do well in markets with clear trends. They tend to lose money when markets suddenly change direction. The Eurekahedge CTA/Managed Futures Hedge Fund Index has declined 0.6 percent through April.
“I am only seeking to raise money with the capacity of the strategy and not any more until I enhance the system,” he said. “For now, I want to focus on managing private money, which is mostly my own money, to build my track record.”
Almost 21 percent of Japanese pension funds plan to increase alternative investments in the fiscal year that started on April 1, a survey by JPMorgan Chase & Co.’s Tokyo-based asset management unit. The increase was the most among 10 asset types.
Ishiyama said he will officially leave Deutsche Securities, where he developed fixed-income derivative products after joining in Tokyo in 2010, at the end of the month. He began his career in 2002 at Daiwa SB Capital Markets where he was an equity derivatives trader, after which he worked at Citigroup Global Markets and Morgan Stanley in Tokyo, where he developed derivatives products.